Credit and debit cards are used widely around the world as a form of payment for goods. The widespread popularity and worldwide use of credit and debit cards stem from benefits of this form of payment over alternatives such as cash or checks. For example, when purchases are made with credit or debit cards, it is not necessary to carry sufficient cash to make purchases. Purchases made with credit cards provide a receipt and are itemized on monthly statements. Also, liability due to loss of a credit card is limited.
Credit and debit cards are issued to individuals or entities by banks and others in order to provide their customers these benefits. With respect to credit cards, after completing a satisfactory application and signing an agreement to make payments for all purchases made with the credit card, a customer is issued a card with identifying information. The customer can then provide this card, or simply provide the card's identifying information, to merchants in order to make a purchase. In current credit card systems today, a credit card purchase typically involves three steps. The first step, Authorization, checks that the card has sufficient "available credit" for the expenditure amount to be approved. When an authorization is granted, the card's available credit is reduced by the expenditure amount, but the transaction is not yet complete. A second step, Capture, actually debits the account holder's account, creating an expenditure transaction record. Often a merchant will capture an entire day's worth of credit card transactions in one large batch operation after the end of the business day. If an expenditure is authorized but not captured, the authorization will expire after a certain number of days and the account holder will not see a transaction on their statement. The third step, Settlement, is when the funds are actually transferred to the merchant for the account holder's payment. If an account holder returns merchandise and receives a full refund credit prior to Settlement, then the funds will not be transferred to the merchant. Each of these steps may be performed by a separate bank or other processing entity. Typically, there are three entities involved in processing: a Merchant Bank, where a business has its banking accounts, an Acquiring Bank, which accepts credit card transactions on behalf of the Merchant Bank, and an Issuing Bank, which issues credit cards to customers.
Typical credit card accounts have a single Credit Limit which is controlled by the card issuer. The initial available credit of an account holder's account is set equal to the Credit Limit. The dollar amount of a purchase made by the account holder is subtracted from the available credit. When a payment is made to the credit card account, the available credit is raised by the amount of the payment. While Credit Limit increases and decreases may be requested by the account holder, changes in the Credit Limit must be authorized by the card issuer. In addition, Credit Limits are sometimes unilaterally increased by the credit card issuer. Credit cards also may permit the account holder to withdraw cash or write drafts. Occasionally, a credit card may have separate credit limits for cash withdrawals and purchases. The normal relation between an account's credit limit and available credit is expressed by the equation: available credit=credit limit--account balance due. Thus, changes in the credit limit of a credit card typically imply changes in the available credit. When a bank increases an account holder's Credit Limit, this results in a corresponding increase in their available credit, as given by the above equation. Although several credit cards may be issued for one credit card account, all transactions made with any of the cards are treated identically.
Some credit card accounts have no customer known Credit Limit. Purchases are allowed without reference to a fixed credit limit or available credit figure. Customer balances and charges are processed using analytical and heuristic techniques to spot fraud, unusual spending patterns, or expenses which may be beyond the ability of the account holder to pay. Unusually expensive purchases typically require additional verification of the identity of the individual using the card. When total outstanding expenditures are computed to be beyond the estimated ability of the account holder to pay, an additional purchase may be refused by the bank. Therefore these cards also have a credit limit, although the limit is not explicitly known by the customer.
Typical debit cards function essentially as electronic checks drawn against the account holder's bank checking account. For a debit card, the "available credit" is equal to the available balance in the account holder's bank account. Increases in the available credit require an actual deposit of funds, into the associated bank account, which must be approved by the bank. For example, checks deposited to an account are often subject to a hold policy of several days until the deposited funds are authorized as "available" by the bank. The account used by a debit card may support other capabilities of a regular bank account, including Automated Teller Machine access.
A recent American Bankers Association report indicates that 3.53 percent of bank credit card accounts are 30 days or more overdue. Another report by the RAM Research Group shows credit card delinquency rates on a dollar basis to be 4.33 percent. There is a need for a system by which children can learn to use credit and debit cards wisely. In addition, there are situations in which a system is needed to provide a method of supervising card usage. For example, supervised credit or debit cards may protect a mentally infirm elderly person from fraud by allowing supervision of large expenditures. In addition, employers may wish to supervise their employees' use of credit cards for business expenses.
The use of credit and debit cards by children currently is limited due to drawbacks with existing systems including:
Inability of Parents to Control Expenditure Amounts: Parents often prefer to supervise a child's expenditures on a case by case basis, since expenditures may vary widely from the cost of lunch to the cost of a new bicycle. A single credit or debit limit large enough for any expenditure does not allow a parent to supervise the child's smaller purchases. Furthermore, current credit and debit card systems provide for a limit which cannot be changed without bank approval. Therefore, parental control of a child's credit or debit card expenditures is limited with current systems. PA1 Inability of Parents to Control Number of Expenditures: Often a parent desires to provide a child with a method of making a limited number of expenditures. Current credit card systems provide no mechanism for parents to limit the number of expenditures made by a child. PA1 Payment Drawback: Typically a parent may simply wish to pay for a child's expenditure without automatically allowing more expenditures. However, in current credit card systems, paying a credit card's balance due results in a corresponding increase in the credit card's available credit.
Accordingly, there is a need for credit or debit card methods and systems that address the disadvantages described above and improve on the methods and systems currently in use.